MINING MARKETS & INVESTMENT NEWS — INVESTMENT COMMENTARY — Yorkton analysts see turnaround at Eldorado Gold

Junior mining companies may be turning into dot.coms by the droves, but those still in the mineral exploration game are being closely watched by Yorkton Securities’ high-profile mining duo of Doug Leishman and Art Ettlinger.

The analysts also keep a close eye on junior and intermediate producers, including Eldorado Gold (ELD-T), which last year appeared to be working its way from the top to near rock-bottom.

A few years ago, after developing and acquiring several gold mines in Mexico and South America, Eldorado shares were trading at more than $10. Today, with 73.3 million shares outstanding, it trades at about 90 cents, up from its 52-week low of 33 cents per share.

But even at today’s low gold price, Leishman and Ettlinger see better days ahead for the leaner, meaner gold producer. “Eldorado appears to be making a 180-degree turnaround from a company near bankruptcy to that of a survivor,” they note in a research report. “More importantly for the market, the Kisladag project [in western Turkey] appears to be developing into a potentially large, 100%-owned gold resource. We believe this will continue, thus we rate Eldorado Gold as a speculative buy for those investors wanting to participate in a growth situation.”

The analysts note that while Eldorado is now demonstrating an ability to adapt and survive as a gold miner, any real upside in share price valuation will come from its exploration assets. “Toward that end, potentially the most important asset appears to be the Kisladag project.”

Earlier this year, Eldorado released assay results from the first six holes (totalling 1,060 metres) completed at the project. All six intersected zones of gold mineralization within quartz-alunite tourmaline altered andesite flows and pyroclastics, overprinted with several phases of quartz stockwork and breccias. Three of the holes bottomed in mineralization.

Results from this drilling range from 115.7 metres grading 1.19 grams gold per tonne to 250.4 metres of 1.77 grams gold.

A second-phase program began this summer, with initial results reported from 13 holes in August. All 11 holes drilled on the main target returned mineralized intersections, including 247.1 metres of 3.23 grams gold and 297.5 metres of 1.99 grams gold. Additional results are expected shortly.

“The main target area with all of the significant assay intersections covers an area of 600 by 300 metres, which includes a distinct (barren) core zone measuring about 300 metres by 100 metres,” the analysts write. “Based on these parameters, we estimate a target on the scale of approximately 78 million tonnes within the first 200 metres from surface. The average weighted grade of all the reported intersections (including the lower grades) within the larger target area is 1.28 grams gold. A rough estimate as to the scale of the postulated target is 3.5 million oz. gold.”

Leishman and Ettlinger expect the average grade of the resource to increase, and also see potential to develop a higher-grade core of more than 2 grams gold per tonne.

As for the reported difficulties of permitting mines in Turkey, the analysts concede that this remains a concern, especially because cyanide would have to be used in the extraction process. However, they note that a government-owned mine 130 km northeast of Kisladag uses cyanide in the extraction and recovery of silver. Accordingly, Eldorado takes the view that projects can be developed if other permitting and cultural issues are treated with sensitivity.

Meanwhile, Eldorado has restructured its debt, which is now about US$30 million. “In addition,” the analysts continue, “operating efficiencies have been completed at the company’s two production sites: Sao Bento in Brazil and La Colorado in Mexico.”

Together, the mines produced just under 100,000 oz. gold in the first half of 1999, and total production this year is expected to reach 185,000 oz. Cash costs at the mines have been reduced to about US$190 per oz. and are expected to remain at these levels. Eldorado has hedged most of its gold production for the next three years at US$297 per oz.

“These changes have resulted in Eldorado reporting earnings for the first six months of this year at US0.04 cents per share, compared with a net loss of US10 cents per share for the same period a year earlier,” Leishman and Ettlinger note.